What are the Tax Implications of Divorce?

Experienced Franklin divorce attorney outlines what’s at stake?

By
the time you start the divorce process, you may have thought about a
lot of things in detail, such as who will keep the house or how you
will split the profits if you decide to sell it, how you will go
about changing back to your maiden name, or even how you will manage
social interactions with your joint friends. But you might not have
even thought of some of the things that can have a big impact on your
bottom line year after year, like your taxes.

You don’t have to pay any tax when you get a divorce, but there are ways
that your
tax obligations
or credits can change significantly. Your divorce can
impact your tax obligations, from the residential arrangements for your
children to the way you divide your assets. I advise my clients to consult
a tax expert on these issues.

Here are a few of the ways that divorce impacts taxes:

Filing status.
Right away, you will experience a change in the amount of tax you
pay because of your filing status. There is a benefit to filing
jointly as a married couple. A single person usually finds their
taxes are higher than they were when married, and that there is a
bigger deduction for their paycheck.

Tax bracket.
One of the tax benefits of divorce, in most cases, is that you will
be in a lower tax bracket as a single person, which may lower the
amount of tax you have to pay.

Child deductions.
The tax law related to children changed significantly in 2018. I am
still trying to understand all the changes in the law here. But
here are some of them:

The tax exemption that you used to get when you claimed
your children is gone effective the 2018 tax year. So there
is no longer any reason to complete the section of the
parenting plan regarding who claims the children to get the
tax exemption.

The primary residential parent* can file as head of
household and take the increased standard deduction of
$18,000. The parent filing as single can take the standard
deduction of $12,000. (*This is defined by tax law based on
the number of nights the child slept in the parent’s home.
This is not the same as “days” under the child support
guidelines, so it may not be the same as the number of days
stated in your parenting plan.)

The primary residential parent can take child and dependent
care credits, which seem to be more than those allowed in
tax years prior to 2017.

The parent claiming the children can take the child tax
credit which doubled to $2,000 per child under the age of
17, but only if the parent’s income is less than $200,000.

The primary residential parent whose income is less than
$54,000 can take the earned income credit, which is about
$3400 for one child and up to $6300 or more for three or
more children.

Child support.
Unfortunately, you cannot deduct
child support
payments from your taxable income. Fortunately, you also cannot be
taxed on money you receive for child support.

Alimony.
There has been a big change in the law effective January 2019. For
divorces granted beginning January 2019, there is no tax on
alimony
received, and the payment of alimony is not tax deductible.

It is best to speak with your
divorce attorney
and a tax expert to understand the rules and how they apply to your
circumstances specifically.

There are other ways that your divorce can run up against the IRS. For
example, if you are ordered to pay alimony or child support and you fail to
do so, the IRS can direct your tax refund to the ex-spouse who is owed an
arrearage. There are also many complex tax rules related to the sale and
transfer of property, which could include your house, rental properties, or
business. It’s important that you consult with your divorce attorney and an
experienced tax expert to understand what the implications are for your
case specifically.

If you aren’t a tax professional, you shouldn’t try to handle the complex
tax issues that are tied up in divorce on your own. You should consult with
the professionals who will help you protect your interests. I’m Judy A. Oxford
, an experienced Franklin divorce attorney, and I advise my clients and
help them to protect their rights during their divorce and fight to get
them the best resolution possible. Call my office today at (615) 791-8511
to start talking about your divorce, or use the
secure online form
on my website to schedule a free consultation.